Today is a Royal wedding in England and in honor of the
happy couple and the English House of Windsor we will take a look at the
Foreign Corrupt Practices Act (FCPA) in the context of a merger and acquisition
(M&A) of a British company.
Until recently, many FCPA practitioners had based
decisions in the M&A context on Department of Justice's (DOJ) Opinion
Release, 08-02 (08-02), which related to Halliburton's proposed acquisition of
the UK entity, Expro. However, the recently released Deferred Prosecution
Agreement (DPA) of Johnson & Johnson (J&J) may have changed the
perception of practitioners regarding what is required of a company in the
M&A arena related to FCPA due diligence, both pre and post-acquisition. In
this post we will review the genesis of 08-02, the risk based approach that it
advocated and the vigorous time frames, which it set forth, to accomplish the
agreed to compliance investigations and opine on how these may have changed.
08-02 began as a request from Halliburton to the DOJ from
issues that arose in the pre-acquisition due diligence of the target company
Expro. Halliburton had submitted the following request to the DOJ specifically
posing these three questions: (1) whether the proposed acquisition transaction
itself would violate the FCPA; (2) whether through the proposed acquisition of
Target, Halliburton would "inherit" any FCPA liabilities of Target for
pre-acquisition unlawful conduct; and (3) whether Halliburton would be held
criminally liable for any post-acquisition unlawful conduct by Target prior to
Halliburton's completion of its FCPA and anti-corruption due diligence, where
such conduct is identified and disclosed to the Department within 180 days of
closing.
I.
08-02 Conditions
Halliburton committed
to the following conditions, if it was the successful bidder in the
acquisition:
1. Within ten business days of the closing.
Halliburton would present to the DOJ a
comprehensive, risk-based FCPA and anti-corruption due
diligence work plan which would address, among other things, the use of agents
and other third parties; commercial dealings with state-owned customers; any
joint venture, teaming or consortium arrangements; customs and immigration
matters; tax matters; and any government licenses and permits. The Halliburton
work plan committed to organizing the due diligence effort into high risk,
medium risk, and lowest risk elements.
a. Within 90 days of Closing.
Halliburton would report to the DOJ the results of its high risk due diligence.
b. Within 120 days of Closing.
Halliburton would report to the DOJ the results to date of its medium risk due
diligence.
c. Within 180 days of Closing.
Halliburton would report to the DOJ the results to date of its lowest risk due
diligence.
d. Within One Year of Closing. Halliburton
committed full remediation of any issues which it discovered within one year of
the closing of the transaction.
Many lawyers were heard to exclaim, "What an order, we
cannot go through with it." However, we advised our clients not to be
discouraged because 08-02 laid out a clear road map for dealing with some of
the difficulties inherent in conducting sufficient pre-acquisition due
diligence in the FCPA context. Indeed the DOJ concluded 08-02 by noting,
"Assuming that Halliburton, in the judgment of the Department, satisfactorily
implements the post-closing plan and remediation detailed above... the Department
does not presently intend to take any enforcement action against Halliburton."
II.
Johnson & Johnson "Enhanced Compliance Obligations"
In the recently released J&J DPA, there is an
Attachment D, which is entitled, "Enhanced Compliance Obligations." This is a
list of compliance obligations in which J&J agreed to undertake certain
enhanced compliance obligations for at least the duration of its DPA. With
regard to the acquisition context, Johnson and Johnson agreed to:
7. J&J will ensure that new business entities are
only acquired after thorough FCPA and anticorruption due diligence by legal,
accounting, and compliance personnel. Where such anticorruption due diligence
is not practicable prior to acquisition of a new business for reasons beyond
J&J's control, or due to any applicable law, rule, or regulation, J&J
will conduct FCPA and anticorruption due diligence subsequent to the
acquisition and report to the Department any corrupt payments, falsified
books and records, or inadequate internal controls as required by ... the
Deferred Prosecution Agreement.
8. J&J will ensure that J&J's policies and
procedures regarding the anticorruption laws and regulations apply as quickly
as is practicable, but in any event no less than one year post-closing, to
newly-acquired businesses, and will promptly: For those operating companies
that are determined not to pose corruption risk, J&J will conduct periodic
FCPA Audits, or will incorporate FCPA components into financial audits.
a. Train directors, officers, employees, agents,
consultants, representatives, distributors, joint venture partners, and
relevant employees thereof, who present corruption risk to J&J, on the
anticorruption laws and regulations and J&J's related policies and
procedures; and
b. Conduct an FCPA-specific audit of all newly-acquired
businesses within 18 months of acquisition.
These enhanced obligations agreed to by J&J in the
M&A context would seem to be less time sensitive than those agreed to by
Halliburton in 08-02. In the J&J DPA, the company agreed to following time
frames:
a. 18 Month-conduct
a full FCPA audit of the acquired company.
b. 12 Month-introduce
full anti-corruption compliance policies and procedures into the acquired
company and train those persons and business representatives which "present
corruption risk to J&J."
So there is no longer a risk based approach as set out in
08-02 and the tight time frames are also relaxed. Once again we applaud the DOJ
for setting out specific information for the compliance practitioner through
the release of the J&J DPA. As many have decried 08-02 is a standard too
difficult to satisfy in the real world of time constraints and budget cuts, the
"Acquisition" component of the J&J DPA should provide those who have made
this claim with some relief.
For a copy of Opinion Release 08-02, click here.
For a copy of the Johnson & Johnson Deferred
Prosecution Agreement, click here.
We would be remiss if we did not wish Prince William and
his bride, Kate, best wishes in their new journey together. No one puts on pomp
and circumstance like the Brits so sit back, relax and enjoy the nuptials with
a nice cup of tea.
Visit the FCPA Compliance and Ethics Blog,
hosted by Thomas Fox, for more commentary on FCPA compliance, indemnities and
other forms of risk management for a worldwide energy practice, tax issues
faced by multi-national US companies, insurance coverage issues and protection
of trade secrets.
This publication contains general information
only and is based on the experiences and research of the author. The author is
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© Thomas R. Fox, 2011
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